Some 401(k) providers market their plans as “free” because there are no explicit costs (i.e. recordkeeping / administrative fees). While a free 401(k) plan sounds great, there is no such thing as free. Below are some items to consider when looking at a free retirement plan:
• All fees come out of the investment expenses • Insurance companies typically include a “wrap” fee in addition to the underlying mutual fund expense • If the 401(k) provider isn’t the investment manager of the funds, they are likely compensated by revenue sharing payments • Participants that don’t see any fees on their statements likely think they are paying nothing • There is no such thing as a free 401(k)
At LT Trust, we offer an open mutual fund and ETF platform where the investment expenses are as they appear in the fund prospectus. We do not layer any additional fees on top of these funds and use any revenue sharing offered by the fund to offset your plan’s expenses – we don’t retain any of it. Instead, we charge explicit recordkeeping and administrative fees so you know exactly how much you are paying for your plan. For a 401(k) plan participant to achieve a sufficient balance at retirement to support a monthly income stream, it really doesn’t matter HOW the fees are being assessed. Whether they come out of the Net Asset Value (NAV) of the funds daily, are assessed quarterly, or a combination thereof. It’s HOW MUCH these two types of fees total that matters.